What is Delivery in Stock Market? Importance, How it Works, Advantages and Disadvantages

Due to the stock market's rapid expansion throughout the years, there are numerous terminologies that investors must know to find success in online share trading—one such term is "delivery." Delivery in the stock market refers to the handing over of shares by a seller to a buyer, which is a crucial component of the stock market. We will go into great detail about delivery trading in the stock market in this article.

What Is Delivery Trading In The Stock Market?

Delivery describes the actual exchange of shares in the stock market between a seller and a buyer. An investor who purchases shares on the stock market has two options for holding them: intraday trading and delivery trading. In intraday trading, shares are bought and sold the same day and aren't kept overnight. In contrast, delivery trading entails keeping the shares for a longer period of time, which entails a transfer from the seller's account to the buyer's demat account.

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How Does Delivery Trading Work In The Stock Market?

Now, let us delve into the details of how delivery trading works in the stock market; the following are the steps of delivery trading:

Step 1: Placing An Order 

Placing an order to buy or sell shares is the first stage in delivery trading. The broker will execute the order on the investor's behalf. That said, investors place their orders through the broker’s trading app or platform. A limit price, or the highest or lowest price for which an investor is willing to purchase or sell the shares, may be included in the order in addition to the current market price.

Step 2: Order Execution

After the order is made, the broker will carry it out on the investor's behalf. The broker will locate a seller ready to sell the stock at the requested price if the order is to purchase stocks. The broker will locate a buyer willing to purchase the stock at the requested price if the order placed is to sell shares.

Step 3: Share Transfer

After the order is executed, the shares are moved from the seller's demat account to the buyer's demat account. The DP (depository participant), who serves as a middleman between the buyer and the seller, facilitates this transfer.

Step 4: Settlement of Funds 

The settlement of funds is the last phase of delivery trade. The agreed-upon amount for the shares will be paid by the buyer, and the seller will get the money in their savings account. The clearing organisation, which serves as a middleman between the banks of the buyer and seller, facilitates this settlement.

Delivery Trading Charges

Delivery trading charges vary from broker to broker. Among these charges are:

Brokerage Fees

On all your transactions, your stockbroker will charge you a brokerage fee. A fixed fee per order or a variable brokerage fee based on the order's value can be charged.

Securities Transaction Tax (STT)

Stock transfer tax (STT) is a government tax imposed on all stock exchange transactions.

Exchange Transaction Charges

The NSE/BSE imposes these additional charges for trading.

SEBI Turnover Fees

All delivery trades are subject to a turnover fee of 0.00010% charged by the Securities and Exchange Board of India (SEBI).

Margin Trade Funding

A margin trade allows investors to purchase more shares at a lower price. In this case, the broker pays the balance amount and charges interest on it. The investor pays the margin.

How To Start Delivery Trading?

The first step to know how to start delivery trading is to open a Demat & Trading Account. A Depository Participant (DP) can open a Demat & Trading Account for you, which could be a bank, broker, or financial institution.

• Visit the DP website or mobile app. Then click on "Open a Demat account" and enter your basic information.
• One-time passwords (OTPs) will be sent to your mobile phone.
• A link will also be sent to your registered email address. Your registered email address will also receive an OTP. Enter it.
• Complete the online account opening form after verifying your OTP.
• You will then receive a call from your Relationship Manager regarding the required documentation.
• The account will be opened within 24 hours of receiving the documentation and the forms at HO.

Advantages Of Delivery Trading

Gaining a clear understanding of what is delivery in stock market is essential for investors, as it encompasses the tangible transfer of securities, finalising a trade, and establishing rightful ownership of shares.

Prompt and reliable delivery in stock market is essential for ensuring seamless transactions and maintaining investor confidence. It involves buying shares and holding them in your demat account for a longer duration rather than trading them on the same day. Delivery trading offers several advantages to investors and traders, which are discussed below.

Long-Term Investment

One of the key advantages of delivery trading is that it allows investors to take a long-term view of the market. Instead of focusing on short-term price fluctuations, investors can hold stocks for an extended period, potentially benefiting from the long-term growth potential of quality companies.

Fundamental Analysis

Delivery trading is well-suited for fundamental analysis. Investors can evaluate a company's financial health, business prospects, industry trends, and other fundamental factors to make informed investment decisions. This approach helps investors identify undervalued stocks and capitalise on their growth potential.

Reduced Transaction Costs

Compared to frequent trading, delivery trading incurs lower transaction costs. Since investors hold stocks for a longer duration, they save on brokerage charges, taxes, and other transaction-related expenses. This can be particularly advantageous for retail investors who may have limited financial resources.

Lower Stress And Emotional Pressure

The efficient delivery in the stock market ensures the secure and timely transfer of securities, enabling smooth settlement and facilitating investor participation. investors are not concerned about short-term market volatility and price fluctuations. They can adopt a more relaxed approach, allowing them to make investment decisions without being influenced by daily market noise. This reduces stress and emotional pressure, promoting a disciplined and rational investment strategy.

Dividend Income

Holding stocks for the long term through delivery trading allows investors to earn regular dividend income. By investing in dividend-paying stocks, investors can enjoy a steady income stream, enhancing their overall returns. 

Disadvantages Of Delivery Trading

The following are the disadvantages of delivery trading:

High Brokerages

One of the biggest disadvantages of delivery trading is the high brokerage charge.

Higher Securities Transaction Tax And Costs

Due to the higher STT imposed on delivery trades, delivery trading involves higher costs than intra-trading.

Upfront Payment

The entire amount of the transaction must be paid upfront. You cannot trade unless you have the funds. As a result, you may lose an opportunity if you do not have the funds.

Conclusion

Delivery trading is an essential component of the stock market, and investors must comprehend how it works in order to make wise investment choices. Investors have the chance to hold shares for longer periods, enabling them to yield higher returns and receive dividends. Delivery trade offers businesses a reliable supply of finance, which is another advantage. In general, everyone wishing to make investments in the stock market has to understand delivery trading. Moreover, it is free to open a demat account and trading account with BlinkX. All you need to do is download the BlinkX trading app and fill out your details. With your account, you can trade, explore, and learn about the financial markets.